Microsoft punts $6bn on aQuantive

Bidding war for digital marketer hots up

Microsoft is buying online marketing agency aQuantive, paying $6 billion (£3.04bn) – more than it has ever paid for an acquisition.

At $66.50 per share (£33.66), Microsoft is paying an 85% premium on its closing price on Thursday, the day before the bid was made public.

aQuantive is the owner of Avenue A|Razorfish, one of the largest online advertising agencies in the world (its sub-brands include DNA in London, Amnesia in Sydney, Neue Digitale in Frankfurt and eCrusade in Hong Kong and Shanghai), DRIVEpm, a group of services that buy and resell publishers' online inventory for marketing campaigns and Atlas, which provides digital marketing campaign technology to both advertisers and publishers.

Seattle-based aQuantive – close to Microsoft's headquarters in Redmond – had revenue of $442 million (£223.7m) and an operating profit of $80m in calendar 2006, up from $308m and $61m respectively in the previous year. This is Microsoft's largest purchase ever – $6bn dwarfs the $1.4bn paid for Great Plains in 2001.

David Bradshaw, principal analyst at researcher Ovum said: “aQuantive is a very serious business as its recent revenue growth and profitability show.” But pointing to the 80% premium on the share price that is almost 14 times its last year's revenue, he asks “How can it be worth this much to Microsoft?”

“The answer is only if Microsoft can use this purchase to drastically improve its share of the online advertising market, which some estimates put as high as $40bn in the last year. There are two main factors that drive success in the online advertising business, the strength of your web presence and how effectively you monetise that web presence.”

But Bradshaw points out that its main online ad rival Google is still in Microsoft’s sights with this deal, which may hold a regulatory twist. “Like Google's purchase of DoubleClick, Microsoft's purchase of aQuantive will attract regulatory attention, so there's a small but finite chance that it may not go through.

“Microsoft said that it was confident that the purchase would go through. It explained that the situation was different from Google-DoubleClick, as there was no overlap between aQuantive and Microsoft, whereas it believed there to be considerable overlap between Google and DoubleClick,” he added. “That raises a rather delicious prospect (from Microsoft's point of view) of Google's purchase being blocked while Microsoft's goes through.”